In 2013, Resolve to Follow the Money

During these first days of January, many adopt an "out with the old, in with
the new," approach to shed bad habits or extra pounds. Washington opted for
its same ol' strategy when averting the "fiscal cliff," as the addictive nature
of "can-kicking is a transatlantic sport," according to The
Economist. The magazine suggests that the deal made in the 11th hour
is "disturbingly similar to the eurozone's." The short-term fix did "nothing
to control the unsustainable path of 'entitlement' spending on pensions and
health care ... nothing to rationalize America's hideously complex and distorted
tax code... and virtually nothing to close America's big structural budget
deficit."

In the end, politicians agreed to end the payroll tax cut and raise taxes
on the top earners; altogether, tax increases will total $162 billion in 2013.
According to a Bloomberg article, it's the first time since 1990 a Republican
leader agreed to a boost on tax rates. The legislation also represents the
largest tax increase in two decades, says the Wall Street Journal.

One negative consequence resulting from the new bill is an immediate hit to
Americans' spending cash. International Strategy & Investment (ISI) anticipates
that the impact will occur in the first quarter of this year, with real disposable
personal income (income after taxes and inflation) decreasing by 3.8 percent,
says ISI. In addition, "real consumer spending is likely to remain sluggish
at 1.5 percent," says ISI.

Avoiding the "fiscal cliff" initially calmed the market, with equities and
gold beginning to rally before the ink was dry. On January 3, I
appeared on Fox Business to discuss the impact on gold and whether the
yellow metal had the strength to increase for the 13th year in a row. I said
that the lack of fiscal austerity combined with monetary reflation would keep
fueling gold throughout 2013.

However, the Federal Reserve poured a bucket of cold water on gold after its
minutes were released, with some members documenting their wish to stop quantitative
easing (QE) before the end of 2013. While this appears to be a negative for
gold, keep in mind that the Fed has always been divided, but when opinions
diverge, leadership prevails, says ISI's Roberto Perli. Chairman Ben Bernanke,
along with William Dudley and Janet Yellen, continue to hold the belief that
more accommodation is required.

In addition, the conflicting comment was made in the context of the labor
market, so if we see QE end by the middle of this year, "it will be because
the economy is getting stronger, and that would be a bullish development," says
Perli.

Regardless, we are seeing developed countries' central bankers adopting very
unconventional monetary policies these days, and "the base case for investors
must remain that, when the pressure is really on, the choice will be made for
yet more easing and yet more bailouts," says Christopher Wood from CLSA.

It's likely that the latest round of easing by the Fed was because Bernanke
anticipated a reduction in spending and wanted to offset the hit taken by the
consumer due to the tax increases. And historically, during times of QE, money
flows to riskier assets.

A few weeks ago, I showed how money was heading to emerging markets, and it's
worth repeating, as the trend has continued in the new year. Since QE3 began
in September 2012, $37 billion has flowed into emerging markets. In total,
during 2012, nearly $50 billion flowed into emerging markets, with three spikes
occurring in January, February and December.

Back in April 2012, I
suggested that if you apply the principle of mean reversion, history
appeared to favor China's H shares to land in the top half of emerging markets
on an annual returns basis. With a new leadership in place and its economy
improving, investors have begun to gain confidence in the Asian giant, and
in response to the significant flows, equities in China began to outperform
other emerging countries, ending the year as a top-half performer on the
Periodic Table of Emerging Markets.

Resolve to Follow the Money

Is it part of your New Year's resolution to improve your investment portfolio?
To help you accomplish that task, join our Outlook
Webcast on January 9 at 3 p.m. CT. Our team of experts will be discussing
ways investors can find opportunity by following monetary and fiscal policies
as well as seasonal and cyclical patterns occurring in global markets and natural
resources.

Frank Holmes is CEO and chief investment officer of U.S. Global Investors,
Inc., which manages a diversified family of mutual funds and hedge funds specializing
in natural resources, emerging markets and infrastructure.

The company's funds have earned more than two dozen Lipper Fund Awards and
certificates since 2000. The Global Resources Fund (PSPFX) was Lipper's top-performing
global natural resources fund in 2010. In 2009, the World Precious Minerals
Fund (UNWPX) was Lipper's top-performing gold fund, the second time in four
years for that achievement. In addition, both funds received 2007 and 2008
Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a
leading publication for the global resources industry, and he is co-author
of "The Goldwatcher: Demystifying Gold Investing."

He is also an advisor to the International Crisis Group, which works to resolve
global conflict, and the William J. Clinton Foundation on sustainable development
in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator
on financial television. He has been profiled by Fortune, Barron's, The Financial
Times and other publications.

Please consider carefully a fund's investment objectives, risks, charges and
expenses. For this and other important information, obtain a fund prospectus
by visiting www.usfunds.com or by calling
1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed
by U.S. Global Brokerage, Inc.